Hi all The types of tenants of we target as property investors/owners doesn't seem to get talked about too much so I am asking you this question in relation to a house I am looking at. What is the market like for more expensive higher quality housing? I am looking at a house marketed for 1.5m in inner Melbourne. I like the house and believe it would suit many owner occupiers. Given the state of the market are there really many people out there that would rent a property this expensive assuming 3% yield give or take? Ie appx $40-45k pa. What is the demographic that would prefer to rent at this price rather than buy and why? This might seem silly but I never really gave too much thought to renters in this property price bracket as I always assumed they would ultimately look to purchase their own homes given they could afford rent at that level. The lower end of the market demographic is a little easier to understand I think. Does anyone have any experience buying in this bracket and if yes what were your thoughts and rationale?
Expats who are only here temporarily? Plenty of families who have the income to rent $900 a week but can't put together $200k to buy. Or they think property is too expensive and are waiting for it to fall. Maybe the choice is renting for $900 but only able to buy a cheaper place. They like the schools, lifestyle, prestige, etc. of the more expensive place so they rent. And with yields so low it's pretty cheap to rent right now.
Doesn't sound silly to me. It probably partially explains why yields are so low as you go up in higher price brackets.
Plenty of professionals who can’t afford to buy in this area, would rent it. The catch being that they would most likely share the place with one or 2 others depending on how many rooms available.
Pretty common in Sydney to get rentals over $1200/wk so I would assume there is also demand in Melbourne as well. Look at the stats for % homeowners/renters in the suburb and that will quickly give you a picture of demand.
Plenty of people funded from work..... I have seen army family's who have been relocated and receive substantial support (if not full rental) payment. Company executive level employee's who also have been transferred interstate. Self employed people who rent a property thru their business to claim a substantial portion of the rent. In the higher end property value yields often aren't as much as they should be, but usually family's take far better care of the property also
They can afford mowing, cleaners, pool cleaning, nannies etc sometimes these are included in the rent as well.
This is something I have looked for already however the suburb has a lot of units so the statistics are quite skewed to being heavily rented I believe. Houses on the other hand are in short supply (good) but make it harder to glean what the actual OO rate of these houses are as I can only find the OO/Rent ratio for the suburb as a whole. If you are aware where I could find this more granular data please let me know. I do however suspect that houses are very tightly held.. again I believe this to be a good thing long term.
I have houses in inner melb. All have been rented to multiple tenants (on a single lease). As you surmise, few people can afford the full rent, but 3/4 people sharing can solve this. The lease is standard (not a rooming house) and it's up to the tenants to source housemates if one leaves (it's in their interest to find someone to share the rent and live with!), and the for the PM to vet them (for our approval). They are very rarely vacant - even during covid (although we had to reduce rent on some due to various housemates leaving etc and the remaining tenants being unable to source new ones understandably). The Y-man
If the house is a new build, wealthy migrants would like to rent. They would like to get a feel on the ground before buying. If it is in Glen Waverley, Balwyn, Doncaster, they would be snatched up fairly quickly once the border opens.
I haven't bought IPs for myself in this bracket (although my own home is now), however I do have experience as one of the tenants you're talking about and rented at this level for about 5 years (around the $850-$900 p/w mark). The reason I (we) did it was the classic rentvester scenario. I have a double digit portfolio and until a few years ago it was better to rent in the area in which we wanted to live and run a reasonably large portfolio of IPs. Cash flow was good, we lived in Mosman in Sydney (check the median house price for yourself!) and we weren't under any mortgage or rental pressure. Both professional jobs and my wife's in the city. As the young kids got a little older and interest rates dropped it started to make more sense both personally and financially to own a home. We had always had the capacity (deposit and borrowing capacity) to purchase a home, but it just wasn't really a driver or necessary to fulfil our personal or financial goals so we held off until the time was right. When it was, we pulled the trigger and haven't looked back. Yes, you will find that tenants who can pay that sort of rent will be able to fund a mortgage, however, there are many reasons why they wouldn't or haven't. Reasons like mine are one, people lack deposit money or are transient (expat for example). Not everyone jumps head first into it. Like anything, if the property is appropriate for the demographic and the yield is acceptable to you, it'll rent. There's always a market for quality properties, albeit a different sort of rental population. It is likely you'll get quality tenants however they will also know their rights and expect to get what they're paying for (which frankly should be a baseline expectation and how I treat all my tenants anyway). Just keep in mind that buying a higher priced property also puts eggs into a single basket, so to speak. Strategies are different, but is it better to buy 3 x $500k properties and have 3 x the problems but better cash flow protection (if one goes vacant you temporarily lose 33% of your cash flow, not 100%) and higher yield, diversification and flexibility? It depends on your strategy but it's something to consider. - Andrew
Plenty in that range in Sydney. We have two terraces, one has two bedrooms + an attic room in Paddington, the other is just two bedrooms in Edgecliff (the 2nd room is smaller). Over I suppose nearly 30 years combined ownership, the typical tenants have been couples in early 30s, no kids. Some had babies and then moved out. A couple of times we've had younger tenants and we (& the neighbours) have regretted it - tend to be party animals. Surprisingly - a few singles. One was fabulous (defence), the neighbours cried when he left LOL. Yes - most left to buy their own place.
I know plenty of people who do/have rented in this price range and they are generally one of two categories: A group of young professionals, or older professionals (usually families) on a work transfer and the rent is being paid by the employer or thier high salary. As you say, most could afford to buy so are likley to do so, or leave once thier work contract is up. The young professional groups tend to stay a long time as they rotate individuals through the house as they come and go. It's a comparatively niche offering however as it does tend to exclude a big part of the population being your modest earning single/couple/family looking for a place of thier own.
Not me personally, but I know a family who bought a house in an inner ring suburb and they rented a freshly renovated high-end home in the same suburb for two years while they redeveloped their new home.
